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Earlier this week I looked at how the adoption of eFX was accelerating and commented on the huge increase in the e-FX ratios at RBS in particular, which has risen from 8% of flows being electronic in 2010 to some 53% in 2013. A whopping 511% increase in their e-FX ratios.

So, it’s interesting to see in today’s FX week an article talking about how RBS is now ‘internalising’ upwards of Continue reading →

The ‘mighty’ Deutsche Bank, has released their ‘next gen’ FX pricing API called “Rapid” (Revolutionary API Design). The next stage in the ongoing ‘FX arms race’ amongst top-tier banks?

Although Deutsche has been the undisputed Global #1 in FX since forever, they have steadily seen their global market share eroded as the chart below shows, and more fully discussed in this post Continue reading →

Are the EU and US regulators converging, or diverging? Are definitions of SEFs (under Dodd-Frank) and OTFs (under MiFID) equivalent? And, do regulators get the differences between multilateral and bilateral execution?

This morning Caplin kicked off Profit & Loss Forex London at the Glazier’s Hall with our early start breakfast panel based on the theme of Paul Caplin’s latest white paper “Single-dealer platforms in a Cleared World“.

The Panel

Clearly both global banks and smaller banks are investing heavily in their e-Commerce infrastructure and front-ends. The panel examined the future of single-dealer platforms and tried to identify what it is that those who are investing in this space have seen, that others may not have.

While the notion of Transaction Cost Analysis has been broadly adopted by the equity markets, it doesn’t have similar adoption in the OTC world. Why is this so? I will attempt to explain the various factors that are driving this extremely important topic.

TCA adoption in the equities world

As the equity markets became more fragmented (chiefly as a desire from the politicians/regulators to encourage more competition amongst exchanges), investment managers (IM) demanded more information from the execution brokers as to how & where the brokers chose to execute trades done on behalf of the IM.

Provision of a metric or series of metrics allowed the IMs to calculate their broker’s execution performance. Originally this was via factors such as VWAP or implementation shortfall.

As execution algorithms became widely adopted, other factors were added to measure the algo performance across lit, dark & internal execution venues. In addition, the regulatory focus on best execution meant that TCA could provide an important measure of best ex. You cannot control a cost unless you can measure it.

FI & FX

In the meantime, the FI & FX markets were developing their own transaction models such as ESP, RFS & RFQ.

We are seeing plenty of new comments, and blog posts regarding who is building single-dealer platforms (SDPs), although there don’t seem to be many posts that take things back to basics and explain the actual reasons SDP’s are being built. For those of you looking for a brief, straightforward explanation, here you go:

When built by an experienced team, single-dealer platforms are a fast, low cost and low risk way to service highly differentiated client segments, delivering unique relationship pricing in commoditised vanilla flow products, and adding stickiness through enhanced compelling and more complex services.

There are no restrictions on what can be built on top of a single-dealer platform. Top players tend to build their platforms in-house, leveraging their huge internal core competences for strategic competitive advantage.

Other benefits to banks include:

Improved margins, through delivering unique per using relationship pricing